KBRA Financial Intelligence

Auto Lending Declines Despite Tariff-Induced Sales Boost

Auto Sales Surge Ahead of New Tariffs

The annual rate of U.S. vehicle sales jumped out to a nearly four-year high of 18.3 million in March, according to new data from the U.S. Bureau of Economic Analysis (BEA). Key macroeconomic indicators including total vehicle sales, inventory-to-sales ratios, and hundreds of other data points can now be monitored and downloaded via KBRA Financial Intelligence’s (KFI) Dashboard.

Part of the sudden surge is likely due to consumers front-running the implementation of new tariffs on vehicles that took effect on April 2. The duties—worth at least 25% on any vehicle imported into the U.S.—could increase the price of certain models assembled in Europe and Asia by more than $12,000, according to an analysis by Anderson Economic Group.

Although current automobile tariffs could be lowered in the future as the U.S. pursues new trade deals, early indications suggest that major trade partners will continue to face elevated duty costs over the long term. The UK was the first nation to secure a new bilateral deal with the White House, undoing a portion of new tariffs. Although tariffs on British vehicles will be reduced to 10%—equal to duties that the UK levies on U.S. vehicles entering its market—the lowered rate only applies to the first 100,000 British vehicles exported to the U.S. and still represents a fourfold increase from the 2.5% rate in place prior to April 2025. According to 2023 Observatory of Economic Complexity (OEC) data, the UK was the seventh-largest source of car shipments to the U.S., but the nation accounted for only 3.1% of total U.S. car imports.

Domestic production of autos staged a small comeback across the most recent two months of data after plunging to a 3.5-year low in January, which may suggest that tariffs are beginning to shift the balance of the U.S. vehicle supply, influencing the share provided by imports versus domestically produced vehicles. The increase in U.S. auto output in March marked the largest month-over-month (MoM) gain since November 2023. Despite this bounce, inventories have continued to slump—falling by more than 77,000 units from their 2024 peak—suggesting that the tariff-driven spike in sales is depleting stock faster than it can be replaced by imports and domestic production. The latest International Trade in Goods and Services report from the U.S. Census Bureau and BEA shows that the year-to-date value of passenger car imports remained virtually unchanged throughout the first three months of 2025, trailing a broader increase of 20% among imports of other capital goods.

Impact on Declining Auto Financing

KBRA Financial Intelligence (KFI) has previously noted that auto loans held by U.S. banks experienced significant retraction throughout each of the eight quarters to 1Q 2025. Although the Federal Reserve reports that average 60-month financing rates for automobiles have declined from a series high of 8.4% last August, the latest reading remains north of 8%. If a material portion of the ongoing sales boost is ultimately attributable to a temporary tariff-driven bump, high financing costs could remain a persistent hurdle for auto lending in the months ahead.

Throughout the past four quarters, the average rate of auto loan delinquency among U.S. banks jumped 25 basis points (bps). Although that is a smaller increase than the 28-bp gain experienced among total bank loans, KBRA Financial Intelligence (KFI) data indicates that average auto loan delinquencies have surpassed their five-year moving average in five of the past six quarters through 1Q 2025. KFI users can sort by loan categories and the delinquency rate impacting those loans for all banks and credit unions via KFI’s web application, the Data Wizard in KFI’s Excel add-in, as well as the Loan Category and Delinquency Report template from our Template Library. To access our full library of tables and templates, request a demo today.